Several banking laws can have a direct impact on the bank customer at the local level. Failure to understand how these laws apply to personal savings can lead to complete loss of IRAs and other retirement investments in the event of bank failure. For this reason, customers would be wise to learn more about these federal bank laws.
Federal deposit insurance
All savings and checking accounts and certificates of deposit are covered by Federal Deposit Insurance Corporation (FDIC) insurance to a maximum of $250,000 per eligible account per owner or co-owner. Amounts in excess of this ceiling are not insured.
A new way around this is the Certificate of Deposite Account Registry Service (CDARS), which spreads out large investments over a large network of banks so that no single CD exceeds the insurable amount, while still dealing with a single bank for statement purposes. This way of dealing with large CD amounts is eligible for “pass-through” FDIC insurance.
= What is not covered by FDIC insurance =
Nearly all investment bank accounts are not FDIC-insured. This includes mutual funds, annuities, stocks, bonds, and nearly all other investment financial vehicles. Money market accounts are sometimes covered or partly covered, but only to the extent that their income comes from CDs.
All forms of insurance policies, including equity-indexed annuities, are not covered by FDIC insurance. These accounts are regulated at the state level by state insurance commissions. The State Guarantee Fund guarantees the principal of equity-indexed annuities, but not their returns.
Treasury bills are also not covered by FDIC insurance. Even when they are held by way of a bank, they are never part of the bank’s funds for any purpose, including re-investment. T-bills cannot be stolen from a bank, because they consist of an accounting entry maintained electronically on the records of the Treasury Department. The bank simply acts as custodian of the T-bills, while direct serial-number ownership is recorded at the Treasury Department and remains with the customer at all times.
Similarly, safety deposit boxes are not considered a type of bank account, and are not covered by FDIC insurance. The bank’s own private insurance may cover losses due to robbery.
By law, every bank customer who is considering investing in a non-FDIC-covered financial product must be explicitly informed that the product is not insured by the FDIC. The customer must also be informed that the product is subject to investment risks, including potential loss of the principal amount as well as any increases in value; and that the financial product is not a deposit or other obligation of, or guaranteed by, the bank.
The Durbin Amendment
The Durbin Amendment is an addendum to the 2010 Dodd-Frank Financial Reform and Consumer Protection Act. Its primary function is to cap fees related to retail debit transactions in order to lower retail costs and spur economic growth. The new regulations came into effect on October 1, 2011.
This new amendment does not cover credit card transactions. The transaction cost on these transactions currently ranges between 2-4%. Both VISA and Mastercard have introduced new payment processing fees which are deliberately designed to circumvent the Durbin regulations.